Talk of welfare reform has been bandied about Congress for years
like a beach ball at a college graduation. But when President
Clinton finally signed The Personal Responsibility and Work
Opportunity Reconciliation Act of 1996 in August, small-business
owners were left wondering "What exactly does this mean to
me?"

The bill affects the Aid to Families With Dependent Children
(AFDC) program (popularly known as welfare), the Supplementary
Security Income program, and the national Food Stamp program. In
simple terms, the new law changes the assumption that welfare is a
guaranteed right. It limits the amount of time adults can collect
welfare to five years in a lifetime, in most cases, and requires
states to have 50 percent of their eligible welfare recipients
working (whether those jobs are subsidized by the state or not) by
2002.

But what does welfare reform mean to small business? Read
on.

Everybody Into The Labor Pool

For many small employers, welfare reform will mean a new source
of employees. The prospect of millions of people moving into the
work force could be a gold mine for certain industries, such as
food service, that experience chronic worker shortages.

Recognizing that potential, in January 1995, the National
Restaurant Association launched the Good Start Project, which got a
pledge from more than 250 restaurant owners nationwide to work more
closely with state and local officials to help hire, train and
promote people receiving public assistance.

Paul Cunningham, president and owner of Schreiner's
Restaurant Inc. in Fond du Lac, Wisconsin, and a board member of
the state's restaurant association, which responded to the
pledge request from the national association, has hands-on
ex-perience hiring AFDC recipients. In general, he has found they
are eager to work.

"We're always looking for people who've got the
personality and physical ability to keep up with us," says
Cunningham. Located on a major highway and serving about 600,000
people each year, Schreiner's earns in excess of $3 million
annually and employs about 150 people.

Cunningham, who for years has worked with government agencies to
hire veterans, workers with disabilities and other hard-to-place
employees, says hiring welfare recipients has eased the crunch of
the labor shortage that plagues his industry. However, he notes,
there are some special considerations when dealing with AFDC
recipients. For example, some also need monetary assistance
obtaining the necessary work clothes; Schreiner's managers have
become adept at tactfully directing them to the appropriate
agencies that provide assistance in this area.

The restaurateur also found that welfare recipients changed the
character of his work force. "Typically, we start people at a
training wage [of $4.50 to $4.75 an hour] washing dishes, and
they're usually high school students," says Cunningham.
The people from the welfare program, however, were a little older
than Cunningham was accustomed to getting for entry-level
positions.

This forced Cunningham and his managers to adjust--not
lower--their expectations. "We were used to having a
30-year-old person with six years of experience," he says.
"Now we've got 30-year-olds [with minimal experience].
This means we have to provide training."

Cunningham's experience is a graphic example of what
potential employers and entrepreneurs are likely to encounter.
Former welfare recipients often come with more baggage than the
typical worker. Although some are college-educated, many have
limited skills and education. Some have histories of domestic abuse
and neglect and have ingrained habits of dependency that may not
change with two weeks--or even two months--of intensive job
preparation training.

Cunningham points out another requirement: the need to offer a
fair wage. If your business pays less than people can make on
welfare, he says, they won't be able to afford to work for you.
Some states' welfare reform programs address this problem by
allowing recipients to keep receiving at least some of their
benefits during the transition to employment. However, one Ft.
Wayne, Indiana, employer found it common for workers to leave one
job to take another paying just 5 cents more per hour. In other
words, money is a big motivator.

Another barrier rarely talked about but ever present is the fact
that many of the single mothers on welfare suffer from low
self-esteem because of past educational and life failures. (Eighty
percent of AFDC recipients are single mothers in their 20s and
30s.) This problem has prompted officials in Culpeper, Virginia, to
begin discussing something they believe is a logical and critical
element of any welfare reform program--mentoring.

"We've gone to the United Way to set up a mentoring
system, and we're going to the private sector looking for
mentors to work one on one with people," explains Chip
Coleman, director of social services for Culpeper County.
Mentoring, which Coleman describes primarily as emotional support,
is a concept that employers who hire welfare recipients should
consider; it's something Cunningham and his staff have done
informally for years.

New Opportunities

For some, welfare reform spells entrepreneurial opportunity.
Just ask Shanta Reid, a 36-year-old Richmond, Virginia, single
mother of three who knows what it's like to live with
poverty.

"I always thought I would be the black June Cleaver, baking
cookies in a house with a white picket fence while Ward was at
work," recalls the effervescent Southerner. Instead, she ended
up with three children, no husband, and just enough money to
disqualify her from receiving welfare assistance but not enough to
afford rat-free housing for herself and her children.

Then, in 1991, Reid was introduced to First Home Inc., a program
designed to take people from homeless to homeowner. "We were
the first family in the program and its first success story,"
says Reid, who was able to put a down payment on a home in
1995.

Once her life began to take shape, Reid's desire to help
others drove her to start a support group for single mothers.
"I wanted to find a way to empower single mothers,"
explains Reid, who had worked in secretarial jobs all her life. In
the process of launching her program, Reid met Michael A. Evans,
director of social services for the city of Richmond, who liked her
straightforward, upbeat approach.

"In 1995, Virginia began implementing a welfare-reform
program requiring AFDC recipients who are able-bodied and have
children over 18 months old to work for their benefits," says
Evans, describing how he began working with Reid. "The program
is scheduled to go on line in April; however, we've already
implemented some parts of the program." Richmond has about
4,000 individuals eligible to participate in the program, dubbed
Welfare to Work. About 90 percent are black, most of them single
women aged 18 to 44 with an average of two kids and an eighth- to
10th-grade education.

Although Reid's initial idea was a support group called
Single Mothers Acting Responsibly Together (S.M.A.R.T.), after she
talked with Evans, it evolved into a two-week-long job preparation
workshop that women in the Welfare to Work program are now required
to attend.

Today, Reid has a contract with the city to teach the class, in
which participants learn basics such as how to dress for a job as
well as gain experience going to companies to find out about
employment opportunities.

In Wisconsin, which has a Work Not Welfare program in Fond du
Lac and Pierce counties and expects to fully implement the
Wisconsin Works (W-2) program by fall, businesses have the
opportunity to bid to be a W-2 agency or work as a subcontractor to
the government agency responsible for the reform efforts, says Tom
Van Ess, a program analyst at W-2.

Those W-2 programs not run by a county are put out for bid among
the private-sector companies that have applied to become a W-2
agency.

Thompson Consulting Ltd. in Brookfield, Wisconsin, is one such
firm. Rob Saam, executive vice president of the 50-employee
outplacement business, says his firm applied to become a W-2 agency
after noticing that the government was getting more involved in
helping people find work.

"The state has set up job centers where people can go to
file for unemployment and look at job openings on computers. The
centers also provide counselors, and to some degree, they're
working with the same people we would otherwise work with,"
explains Saam, who says his company is typically paid by employers
to provide services such as helping laid-off workers assess job
experience, education, background and skills to find their next
job.

"We help people with interviewing techniques and
negotiating job offers," says Saam. "In some cases, we
also provide offices where people can telephone for jobs and
secretaries who'll type correspondence."

If Thompson Consulting wins the contract, Saam says, it
won't be the first time people on his staff, which includes
licensed psychologists and counselors, have provided services to
AFDC recipients.

Entrepreneurs with ideas you think would work for welfare reform
should remember the emphasis has shifted away from education to
work, says Richmond's Evans. Any proposal should stress how
quickly you will be able to move welfare recipients into permanent
work situations. And in many, if not all cases, pay is directly
tied to the program's performance.

"We use local community colleges and a private industry
council to provide short-term training, but we're also open to
using the private sector," says Evans. "But companies
must offer a good product and meet the requirements for job
placement and retention. We're generally looking for a 75
percent completion rate for the program and another 75 percent [of
participants] getting placed and staying on a job for at least 90
days."

Indiana also has pay-for-performance job placement contracts
where profit or nonprofit groups can provide job search, skill
development and placement services in all of the state's 92
counties. According to Cheryl Sullivan, secretary of the Indiana
Family and Social Services Administration, proposals should stress
how quickly workers will be placed in full-time, entry-level or
better jobs that offer more than 37 hours per week, pay at least
$6.06 per hour, and include health care and other benefits.

In Richmond, if you've got an idea related to welfare
reform, just call Evans. In other states, like Indiana, you need to
wait for a request for proposals to be issued. In general,
contacting the state department that handles AFDC is a good place
to start, as is the state's private industry council.

Basic Needs And Beyond

Providing job search assistance, training and placement for
welfare recipients is not the only business opportunity to be found
in welfare reform. Some of the biggest opportunities revolve around
the very barriers that have traditionally made it difficult for
single mothers on welfare to work--reliable and quality child care
and transportation.

In Culpeper, Virginia, Coleman says the government operates a
year-round day-care system that offers government subsidies for
welfare recipients and the working poor. This program, he adds,
could easily be run by the private sector.

Indiana conducted a needs assessment and found that child care,
transportation and medical care were critical needs for the welfare
population. These present excellent entrepreneurial opportunities,
particularly in transportation. Sullivan says her Indiana agency
would seriously consider subsidizing any proposal that offered a
solution to the transportation dilemma.

Evans in Richmond agrees, adding that a business that could
develop a way to provide these new workers with reliable, low-cost
cars and car repair services could create a new business
avenue.

In fact, Evans sees even further opportunities in this market.
"We've got 4,000 people [in Richmond who will be] entering
the work force. They're going to find themselves with income
they've never had before and are going to be looking for ways
to dispose of that income through purchasing autos, housing, other
commodities and even luxuries. This is a potential market for small
business to explore," he says.

By the same token, many former welfare recipients will need
training in how to budget and use credit, banks and other financial
tools.

Coleman and Evans also urge entrepreneurs to consider more
long-term needs. Both realize that many of the people exchanging
welfare for jobs will merely swell the ranks of the working poor.
Consequently, employers who provide these workers with on-site
training will be creating trained workers who can advance as their
companies evolve.

Whether you see welfare reform as the dawning of new
entrepreneurial opportunities or a source of desperately needed
employees, remember that, like Rome, the welfare system was not
built in a day and won't be changed in a day. But if enough
entrepreneurs get involved in the planning process, chances are
good that the new system could become something that benefits
everyone involved.

Changing The Rules

The Personal Responsibility and Work Opportunity Reconciliation
Act of 1996 will have a major effect on America. But to understand
just how big it is, you need some facts.

Welfare reform is not new. In fact, The Family Support Act,
passed in 1988, required all states to implement the Jobs
Opportunities and Basic Skills (JOBS) training program, mandating
that at least 20 percent of a state's eligible welfare
recipients be involved in work activities by 1995. These activities
included getting a high school education, receiving job preparation
or vocational training, working in community service, or finding
subsidized or unsubsidized employment.

The new legislation supersedes this law. However, some states
with federal government waivers may be able to keep operating their
current programs with only minor revisions. Others may have to
totally restructure.

Although it is not in the federal legislation, some state
programs may offer employers limited subsidies for hiring welfare
recipients.

Among the changes under the 1996 welfare reform legislation:

The Aid to Families With Dependent Children program will now be
called Temporary Assistance for Needy Families.

People are no longer guaranteed assistance; states determine
eligibility criteria and benefit limits.

Recipients receive benefits for no more than two years without
working.

Adults are limited to five years of welfare in their lifetime;
however, 20 percent of each state's recipients can be exempted
from this limit.

States must have 50 percent of their single-parent welfare
recipients working by 2002.

States may reduce or terminate the cash benefits of those who
fail to fulfill the work requirement.

Able-bodied food stamp recipients with no dependents must work
at least 20 hours per week after receiving benefits for three
months in any three-year period.

Whos Who?

To more fully understand The Personal Responsibility and Work
Opportunity Reconciliation Act of 1996, it's critical to
understand who the welfare recipients are.

An estimated 4.5 million families receive Aid to Families With
Dependent Children (AFDC); by 2002, about 2 million adults in these
families will be required to work under the new law.

A Congressional Budget Office report found that benefits
provided under AFDC and Food Stamps programs represented
approximately 3 percent of the federal budget in 1995.

In 1992, according to the most recent federal statistics, 66
percent of all AFDC recipients were children, 80 per-cent lived in
families headed by mothers in their 20s and 30s, and 8 percent
lived in families headed by a teen.

Seventy percent of all people in the welfare system leave
within two years; 50 percent leave within one year. Only 15 percent
of welfare recipients stay on more than five years, and less than
25 percent stay on for 10 years or more.

Studies estimate at least half of AFDC families who leave the
system return because of job loss or child-care problems.

Ethnic breakdown of AFDC families in 1993 (the most recent
figures available):